Myanmar kyat weakening steadily

Myanmar’s currency, the kyat, has been weakening steadily against the US dollar since the formerly tightly controlled exchange rate has been floated in April 2012, rising concerns among investors about the stability of the currency and depreciation of repatriated profits.

Originally, the Central Bank of Myanmar in 2012 has ended the 35-year artificial currency regime which had put the official value at about 6 kyats per US dollar. This was replaced by a floating exchange rate starting at 818 kyat against the US dollar, with banks allowed to trade at plus or minus 0.8 per cent of the reference rate.

However, as of May 13, 2013, the exchange rate stood at around 900 kyat to the US dollar, showing that the monetary framework put in place by the central bank is not strong enough to rein in volatility. The central bank oversees a daily currency auction involving up to 11 dealer banks to determine the reference rate for that day’s trading, but its own measures to keep the rate within the desired range are obviously to weak.

Analysts expect the kyat rate to the US dollar to exceed 1,000 in the near future, a level that represents the former “street rate” in times of currency rate controls. This will lead to lower revenue flows for all economic sectors that deal with foreign currencies, such as exporting manufacturers, commodity exporters, energy providers, hotels, travel and tour companies, airlines and companies dealing with currency purchasing and selling by account transfer.

In the latest development, the Myanmar government has eased foreign currency exchange control, allowing exchange of up to $10,000 with Myanmar kyats without any documentation. This could technically assist in speculating against the kyat at a broader range. Money experts say a speculative attack of just about a few million dollars would be sufficient to hurt the kyat significantly.

Myanmar’s currency, the kyat, has been weakening steadily against the US dollar since the formerly tightly controlled exchange rate has been floated in April 2012, rising concerns among investors about the stability of the currency and depreciation of repatriated profits.

Originally, the Central Bank of Myanmar in 2012 has ended the 35-year artificial currency regime which had put the official value at about 6 kyats per US dollar. This was replaced by a floating exchange rate starting at 818 kyat against the US dollar, with banks allowed to trade at plus or minus 0.8 per cent of the reference rate.

However, as of May 13, 2013, the exchange rate stood at around 900 kyat to the US dollar, showing that the monetary framework put in place by the central bank is not strong enough to rein in volatility. The central bank oversees a daily currency auction involving up to 11 dealer banks to determine the reference rate for that day’s trading, but its own measures to keep the rate within the desired range are obviously to weak.

Analysts expect the kyat rate to the US dollar to exceed 1,000 in the near future, a level that represents the former “street rate” in times of currency rate controls. This will lead to lower revenue flows for all economic sectors that deal with foreign currencies, such as exporting manufacturers, commodity exporters, energy providers, hotels, travel and tour companies, airlines and companies dealing with currency purchasing and selling by account transfer.

In the latest development, the Myanmar government has eased foreign currency exchange control, allowing exchange of up to $10,000 with Myanmar kyats without any documentation. This could technically assist in speculating against the kyat at a broader range. Money experts say a speculative attack of just about a few million dollars would be sufficient to hurt the kyat significantly.